The Economics of Imperfect Labor Markets

Abstract

The novelty of this book is that from the start the focus is on labor market institutions operating in imperfect labor markets, that is, markets departing from perfect competition. Imperfect markets are characterised by the presence of many labor market institutions, that is, systems of laws, pro- grams shaping the behavior of individual workers and employers. Institutions result from a political process aimed at: i) increasing economic e¢ ciency, and ii) achieving some redistributive goal. E¢ - ciency is achieved by remedying to market imperfections, such as excessive monopsonistic power, informational aymmetries giving rise to moral hazard and adverse selection problems, externalities associated with social customs or the job matching process as well as transaction costs and frictions restricting the size of markets. Redistribution provides a rationale for these institutions even when there are no market imperfections. In imperfect markets redistribution sometimes can be achieved while pursuing e¢ ciency, as in the case of institutions, such as minimum wages or employment subsidies, counteracting excessive monopsonistic power. In most of the cases, however, the tradi- tional trade-o¤ between e¢ ciency and equity arises. Actually the redistribution operated by these institutions may well not be towards having a more egalitarian society or represting the interests of the median voter. There are frequent policy failures in the design of labor market institutions, giving disproportionate representation to some pressure group pursuing very specific interests.

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